§ Mr. Craigenasked the Chancellor of the Exchequer what would be the estimated loss of revenue in a full year of a reduction in the present 15 per cent. rate of value added tax to 12½ per cent., by how much such a reduction would decrease the retail prices index; and whether, and to what extent, he estimates that this would facilitate employment growth.
§ Mr. Bruce-Gardyne[pursuant to his reply, 11 November, c. 83.]: In a full year the direct loss of revenue would be about £1,500 million. The impact effect would be to reduce the retail prices index by about 1¼ per cent.
The eventual effect on prices employment and Government revenues would depend on a wide variety of factors. Estimates of these effects would require the use of a complex economic model, and would depend on a number of assumptions about for example, monetary policy and the exchange rate. They would necessarily be subject to wide margins of error due to our uncertain 130W knowledge of the underlying economic relationships. In view of this, and the disproportionate costs involved, I am unwilling to commit my Department's resources to making such estimates. The hon. Member may wish, however, to pursue his inquiry via his access to the Treasury's economic model through the Library of the House.